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AXT, Inc. Announces Second Quarter 2014 Financial Results

FREMONT, CA -- (Marketwired) -- 07/31/14 -- AXT, Inc. (NASDAQ: AXTI), a leading manufacturer of compound semiconductor substrates, today reported financial results for the second quarter ended June 30, 2014.

Second Quarter 2014 Results
Revenue for the second quarter of 2014 was $21.4 million compared with $19.3 million in the first quarter of 2014. Total gallium arsenide (GaAs) substrate revenue was $11.3 million for the second quarter of 2014, compared with $8.5 million in the first quarter of 2014. Indium phosphide (InP) substrate revenue was $3.0 million for the second quarter of 2014, compared with $2.2 million in the first quarter of 2014. Germanium (Ge) substrate revenue was $1.7 million for the second quarter of 2014, compared with $3.2 million in the first quarter of 2014. Raw materials sales were $5.4 million for the second quarter of 2014, consistent with $5.4 million in the first quarter of 2014.

Gross margin was 19.4 percent of revenue for the second quarter of 2014, compared with 14.1 percent of revenue in the first quarter of 2014.

Operating expenses were $4.7 million in the second quarter of 2014, compared with $5.1 million in the first quarter of 2014. The decrease in operating expenses was primarily the result of cost-savings initiatives that were implemented during the first quarter of 2014.

Loss from operations for the second quarter of 2014 was $515,000 compared with a loss from operations of $2.4 million in the first quarter of 2014.

Net interest and other income for the second quarter of 2014 was $1.2 million, which was primarily attributable to $625,000 from equity earnings of the company's unconsolidated joint ventures, $324,000 from the sale of IntelliEpi stock, $158,000 from a gain on foreign exchange and $127,000 from interest income. This compares with net interest and other income of $624,000 in the first quarter of 2014, which was mainly attributable to $487,000 equity earnings of our unconsolidated joint ventures, and $127,000 from interest income.

Net income in the second quarter of 2014 was $319,000 or $0.01 per diluted share compared with net loss of $2.0 million or $0.06 per diluted share in the first quarter of 2014.

Management Qualitative Comments
"Q2 was a positive quarter for AXT," said Morris Young, chief executive officer. "Through a combination of higher revenues, positive sales mix, other income and the first full quarter of benefit from our cost-savings measures, we achieved profitability ahead of our plan. In addition, with continued focus on cash management, we drove improvement in our balance sheet, growing our cash position and reducing inventory. While the business environment remains challenging, during the second quarter we experienced stronger demand in both our semi-insulating and semi-conducting gallium arsenide substrates as well as continued strength in indium phosphide. Looking forward, we remain cautiously optimistic about our opportunities to drive further growth in our business."

Conference Call
The company will host a conference call to discuss these results today at 1:30 p.m. PDT. The conference call can be accessed at (719) 325-2393 (passcode 1988577). The call will also be simulcast on the Internet at www.axt.com. Replays will be available at (719) 457-0820 (passcode 1988577) until August 7, 2014. Financial and statistical information to be discussed in the call will be available on the company's website immediately prior to commencement of the call. Additional investor information can be accessed at http://www.axt.com or by calling the company's Investor Relations Department at (510) 683-5900.

AXT will provide highlights of its second quarter results on today's conference call, but investors can find the full financial summary on the investor relations portion of the company's website at www.axt.com.

About AXT, Inc.
AXT designs, develops, manufactures and distributes high-performance compound and single element semiconductor substrates comprising gallium arsenide (GaAs), indium phosphide (InP) and germanium (Ge) through its manufacturing facilities in Beijing, China. In addition, AXT maintains its sales, administration and customer service functions at its headquarters in Fremont, California. The company's substrate products are used primarily in lighting display applications, wireless communications, fiber optic communications and solar cell. Its vertical gradient freeze (VGF) technique for manufacturing semiconductor substrates provides significant benefits over other methods and enabled AXT to become a leading manufacturer of such substrates. AXT has manufacturing facilities in China and invests in joint ventures in China producing raw materials. For more information, see AXT's website at http://www.axt.com.

Safe Harbor Statement
The foregoing paragraphs contain forward-looking statements within the meaning of the Federal Securities laws, including statements regarding the market demand for our products, our market opportunity, our business planning and management approach and our expectations with respect to our business prospects. These forward-looking statements are based upon specific assumptions that are subject to uncertainties and factors relating to the company's operations and business environment, which could cause actual results of the company to differ materially from those expressed or implied in the forward-looking statements contained in the foregoing discussion. These uncertainties and factors include but are not limited to: overall conditions in the markets in which the company competes; global financial conditions and uncertainties; market acceptance and demand for the company's products; the impact of factory closures or other events causing delays by our customers on the timing of sales of our products; and other factors as set forth in the company's annual report on Form 10-K and other filings made with the Securities and Exchange Commission. Each of these factors is difficult to predict and many are beyond the company's control. The company does not undertake any obligation to update any forward-looking statement, as a result of new information, future events or otherwise.

AXT, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, in thousands, except per share data)
Three Months Ended Six Months Ended
June 30, June 30,
2014 2013 2014 2013
Revenue $ 21,449 $ 23,831 $ 40,794 $ 46,211
Cost of revenue 17,289 20,746 33,916 39,642
Gross profit 4,160 3,085 6,878 6,569
Operating expenses:
Selling, general and administrative 3,688 4,207 7,124 8,132
Research and development 987 1,039 1,762 1,861
Restructuring charge 907
Total operating expenses 4,675 5,246 9,793 9,993
Income (loss) from operations (515 ) (2,161 ) (2,915 ) (3,424 )
Interest income, net 127 50 254 81
Equity in earnings of unconsolidated joint ventures 625 471 1,112 753
Other income (expense), net 476 381 486 (444 )
Income (loss) before provision for income taxes 713 (1,259 ) (1,063 ) (3,034 )
Provision (benefit) for income taxes 152 342 211 526
Net income (loss) 561 (1,601 ) (1,274 ) (3,560 )
Less: Net income (loss) attributable to noncontrolling interest (242 ) (434 ) (447 ) (875 )
Net income (loss) attributable to AXT, Inc. $ 319 $ (2,035 ) $ (1,721 ) $ (4,435 )
Net income (loss) attributable to AXT, Inc. per common share:
Basic $ 0.01 $ (0.06 ) $ (0.06 ) $ (0.14 )
Diluted $ 0.01 $ (0.06 ) $ (0.06 ) $ (0.14 )
Weighted average number of common shares outstanding:
Basic 32,381 32,382 32,407 32,340
Diluted 32,597 32,382 32,407 32,340
AXT, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited, in thousands)
June 30, December 31,
2014 2013
Assets:
Current assets
Cash and cash equivalents $ 26,307 $ 24,961
Short-term investments 22,097 12,499
Accounts receivable, net 19,288 14,943
Inventories 35,263 39,127
Related party notes receivable - current 0 0
Prepaid expenses and other current assets 4,695 8,010
Total current assets 107,650 99,540
Long-term investments 959 10,145
Property, plant and equipment, net 35,226 37,621
Related party notes receivable - long-term 1,703 1,715
Other assets 15,170 14,801
Total assets $ 160,708 $ 163,822
Liabilities and stockholders' equity:
Current liabilities
Accounts payable $ 6,612 $ 8,140
Accrued liabilities 7,122 7,286
Total current liabilities 13,734 15,426
Long-term portion of royalty payments 2,125 2,525
Other long-term liabilities 366 325
Total liabilities 16,225 18,276
Stockholders' equity:
Preferred stock 3,532 3,532
Common stock 32 32
Additional paid-in capital 194,751 194,156
Accumulated deficit (68,726 ) (67,005 )
Accumulated other comprehensive income 8,722 8,953
Total AXT, Inc. stockholders' equity 138,311 139,668
Noncontrolling interest 6,172 5,878
Total stockholders' equity 144,483 145,546
Total liabilities and stockholders' equity $ 160,708 $ 163,822

Contacts:
Morris S. Young
Chief Executive Officer
(510) 683-5900

Leslie Green
Green Communications Consulting, LLC
(650) 312-9060

Source: AXT, Inc.